Paul Isola is regional vice president of operations for Mountain West Financial Inc.’s Pacific Northwest Division. He oversees wholesale- and retail-channel loans from California,
Washington and Oregon. Isola has been in the mortgage
industry for more than 20 years and has held various positions in both operations and production. He began his career
in under writing and learned mortgage loans from the inside
out, holding investor quality and sales support as his highest
priorities. Reach Isola at paul.isola@mwfinc.com.

The GSEs Are Spreading Their WingsThe FHA loan-guarantee program faces increasing competition from thebig boys on the blockBy Paul Isola

The news is replete with stories about ris- ing rates, low home inventories and rising home prices. All of these factors have con- tributed to an affordability crunch for many
Americans looking to purchase their first home or
hoping to move up to a larger home in a better neighborhood. Low-downpayment options, allowances for
heavier debt loads as well as limited or weaker credit
profiles are additional hurdles stifling these would-be
buyers.

To address this problem, the government-sponsored
enterprises (GSEs) Fannie Mae and Freddie Mac have
been making calculated moves to dive into the realm
of what traditionally has been the market space of the
Federal Housing Administration (FHA). Both GSEs have
rolled out new programs, updated technologies and
shown a general loosening in credit policies over the
last few years so they can capture more business.

The GSEs are allowing higher loan-to-value ratios,
offering cheaper private mortgage insurance options
and giving lenders tools intended to streamline and
speed up the loan process. These shifting market
trends should matter to mortgage originators looking
to provide their clients with the best financing options,
given the GSEs and FHA are key market players that are
ultimately competing for that business.

Expanding GSE reach

Historically speaking, prior to the collapse of the subprime market a decade ago, FHA’s share of the mortgage market was normally about 10 percent per year.

In the years that followed the financial collapse, FHA’s
share swelled to almost 19 percent. As conditions improved over the past several years, the GSE’s have
taken back some of that market share, and FHA’s share
of the mortgage-origination market currently stands
at about 13 percent.

Many experts feel this trend will continue as the
GSEs push forward, looking at new ways to be better, all while FHA seems to be stagnant, with little to
no momentum in terms of making advancements or
reducing the cost of their mortgage insurance premiums. There also is a perception among some home
sellers that a purchaser using FHA is not as attractive
as a purchaser using a conventional loan.

The perception is that FHA loans take too long to
close and that the buyer may not be as financially
strong as someone who is approved for conventional
financing. The GSEs know all of this, so they have been
revamping their products and services to copy some of
what FHA has been doing. Their end game is to assist
people in achieving homeownership while also gaining
market share they did not possess previously.

Lower insurance costs

Not that long ago, it was a lot easier to look at a borrower’s profile and place them into the specific loan
type that best suited their particular needs. Those
lines are more blurred in these current times, as the
differences between conventional and government
loans are starting to blur. Take, for example, maximum
allowable loan-to-value ratios (LTVs).